WFC: Wells Fargo 2026

[Kingran]

$WFC, cleared asset cap and all the consent order. A new era of growth at $WFC. So revisiting the thesis (posted On Jun 2025, with 1Q results, and updating expectations for 2028) …

@Kingran

Here is my thesis:

• This should unleash next 3 to 5 years of growth
• The bank in anticipation of asset cap removal, identified few areas of growth and made some investments, and increased hiring. They are focusing on IB, wealth, this should drive fee income.
• The bank over next 3 to 5 years should be able to attract around $300 to $500 B in deposits, at the low end (at just 1% NII on $300 B deposits) this should add $1 to EPS, and at high end (at 2% NII on $500 B deposits) this should add $3 EPS.
• It will take the bank 12 to 18 months for the bank to show the gains in deposits, loans, fee income and EPS. If the stock price trades in the range remember the bank has already announced $46 B of share buyback, that should reduce 15 ~ 20% of the outstanding shares.
• The bank pays $1.6 annual dividend, at today’s price it yields 2.12%. expect this to be increased steadily to $2 to $2.5.
• The bank has excess capital, that will allow it to invest in growth, repurchase shares and pay dividend, depending on growth, share price they can flex buyback or dividend.
• Lastly, expect banking de-regulation for the next 3 years.

Growth

Consumer:

1. Checking accounts opening up 15%+; This will eventually lead to cheaper deposits
2. New Credit card accounts up nearly 60%; Currently this results in higher provisions, marketing and investments; eventually will be a tailwind

Wealth and Investment management:

1. Advisor hiring with $100mm+ production across all channels
2. Onboarded independent advisor channel (FiNet) teams managing ~$9 billion in client assets

Commercial banking:

Hiring around 200 coverage bankers (aka relationship bankers for commercial clients), driving deposit 8%, and loans 7% growth; Also, currently this deposit growth is hurting NIM

NIM

This quarter NIM has decreased from 2.6% to 2.47%, by 13 basis point. And the bank expects “additional margin compression in next quarter” This one line caused the sell-off in the share. The causes of the decline are:

1. Market business growth, these are lower ROA, lower risk, and capital intensive
2. Growth in interest bearing deposits and short-term borrowing
3. Impact of lower interest rates

While the bank is maintaining their NII, net interest income guidance of +/- $50 B, but NIM is contracting because of the growth. The expectation is this will normalize and will revert to 2.5% by 2028.

Expense management

1Q Expense ratio is 67%; This is too high; While salary is biggest component of expenses, reduction in force alone is not going to address this; what other costs $WFC planning to bring it down? For now, the assumption is it will step down to 60% by 2028. Every one % reduction results $1 B falls to the bottom line.

RoTCE

$WFC set 2028 (medium-term) RoTCE target of 17~18%, up from current 15%. The bank sees multiple pathway to achieve that, primarily driven by growth in fee income, loan and deposit growth. Also, if they can improve the NIM, back to historical levels that can also help. Lastly, buybacks, or reducing shares will help.

My expectation is the bank can do $100 B in revenue ($60 B in net interest income and $40 B non-interest income) and with 60% expense $40B pre-provision operating income, and can do $25 ~ $27 B in net income (after provisions, tax, preferred dividend, etc), that could translate to $9 to $10 EPS by 2028. That should get the share price to $100, and yearly dividend of $2.2 ~ $2.5.